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TRUTH: ABOUT THOSE NO POINTS, NO FEES LOANS ...

You have heard it before: free appraisal, no charges for applications, no up-front fees, no credit report charges …

The reality is that it takes money to open the doors and staff the company.

The reality is that taking an application costs money.

The reality is that ending out verifications of employment, assets, tax records costs money.

The reality is that credit reports cost money.

The reality is that appraisals cost money.

The reality is that preparing documents costs money.

AND THE REALITY IS THAT ALL OF THESE NORMAL AND CUSTOMARY EXPENSES ARE PAID BY THE BORROWER, NOT THE LENDER!

In the beginning, hiding actual costs was a matter of avoiding consumer disclosure and the expense of preparing complex preliminary and closing documentation. In some case, hiding additional profits when closing document fees of $100.00 or more were hiding the fact that the closing documents were actually prepared and delivered for $37.50.

So where are the fees hidden?

All of the fees, the costs of doing business and keeping the lights on – plus profit – are hidden in the interest rate that you pay for the loan. And, with the benefit of limited disclosure.

For years, regulatory agencies have tried to impose meaningful consumer disclosure documents – often with fanciful titles like “Truth-in-Lending” and “Good Faith Estimate” -- and they are still trying to implement meaningful consumer disclosure documents. The latest documents come from the Consumer Financial Protection Bureau and may or may not be implemented this fall.

Bottom line …

There is no free lunch. Financial institutions are not charities and there is a tremendous amounts of money in originating mortgages and then selling them immediately to packagers for the secondary securities market. Very few financial institutions create their own loan portfolios and keep the loans they originate.

If you want to get the best deal, you simply take the best rate and terms regardless of the company offering the deal.

If you are having trouble qualifying for a loan – make sure that you can really afford the loan – and that the loan agent is not screwing with you. An old tactic was to tell a borrower with good credit that they had marginal credit and use that to extract rates in excess of what the borrower could actually obtain elsewhere.

Most people are so stressed and afraid they will lose the deal, that they roll-over willingly for the loan officer that appears to throw them a lifeline to save their dream. Truth be told, they were never in danger and the agent was trying to maximize the institution’s profit and their own commission.

The best advice comes from the Better Business Bureau: Investigate BEFORE you invest.

-- steve

P.S. You know those buy-one, get one free or buy three tires and you get one free –> nothing is free, the price includes all of the goods plus a profit. And, in the case of those tires, don’t forget the add-ons waste disposal charges, balancing, weights, stems and valves.

"The object in life is not to be on the side of the majority, but to escape finding oneself in the ranks of the insane." -- Marcus Aurelius

Comments

You have heard it before: free appraisal, no charges for applications, no up-front fees, no credit report charges …

The reality is that it takes money to open the doors and staff the company.

The reality is that taking an application costs money.

The reality is that ending out verifications of employment, assets, tax records costs money.

The reality is that credit reports cost money.

The reality is that appraisals cost money.

The reality is that preparing documents costs money.

AND THE REALITY IS THAT ALL OF THESE NORMAL AND CUSTOMARY EXPENSES ARE PAID BY THE BORROWER, NOT THE LENDER!

In the beginning, hiding actual costs was a matter of avoiding consumer disclosure and the expense of preparing complex preliminary and closing documentation. In some case, hiding additional profits when closing document fees of $100.00 or more were hiding the fact that the closing documents were actually prepared and delivered for $37.50.

So where are the fees hidden?

All of the fees, the costs of doing business and keeping the lights on – plus profit – are hidden in the interest rate that you pay for the loan. And, with the benefit of limited disclosure.

For years, regulatory agencies have tried to impose meaningful consumer disclosure documents – often with fanciful titles like “Truth-in-Lending” and “Good Faith Estimate” -- and they are still trying to implement meaningful consumer disclosure documents. The latest documents come from the Consumer Financial Protection Bureau and may or may not be implemented this fall.

Bottom line …

There is no free lunch. Financial institutions are not charities and there is a tremendous amounts of money in originating mortgages and then selling them immediately to packagers for the secondary securities market. Very few financial institutions create their own loan portfolios and keep the loans they originate.

If you want to get the best deal, you simply take the best rate and terms regardless of the company offering the deal.

If you are having trouble qualifying for a loan – make sure that you can really afford the loan – and that the loan agent is not screwing with you. An old tactic was to tell a borrower with good credit that they had marginal credit and use that to extract rates in excess of what the borrower could actually obtain elsewhere.

Most people are so stressed and afraid they will lose the deal, that they roll-over willingly for the loan officer that appears to throw them a lifeline to save their dream. Truth be told, they were never in danger and the agent was trying to maximize the institution’s profit and their own commission.

The best advice comes from the Better Business Bureau: Investigate BEFORE you invest.

-- steve

P.S. You know those buy-one, get one free or buy three tires and you get one free –> nothing is free, the price includes all of the goods plus a profit. And, in the case of those tires, don’t forget the add-ons waste disposal charges, balancing, weights, stems and valves.